This is Great News for us that they predict San Diego as one of the markets to turn around first! We are seeing these Foreclosure Bidding Wars in our market. We have experienced it first hand in Oceanside.

The administration's loan modification program has helped 55,000 troubled borrowers so far. But the housing crisis is complex and the fixes aren't so easy.

NEW YORK (CNNMoney.com) -- Loan servicers are overwhelmed by the flood of applications. Mortgage investors are angry about a congressional bill prohibiting them from suing servicersthat modify loans. Foreclosures are rising as unemployment soars.

Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure.

So far, more than 55,000 borrowers have been put into trial modifications, which become permanent if they keep up with payments for three months. Hundreds of thousands more have applied.

However, the initiative must still get over several hurdles before its chances for success can be determined.

Stressed servicers: The program's guidelines were issued on March 4, but it took many servicers weeks to reprogram their systems and train their staffs. Many did not even start accepting applications until early- to mid-April, frustrating troubled borrowers forced to wait to find out if they qualify for lower rates.

Even now, housing counselors and borrowers report that servicers are still getting up to speed on the program, causing delays and confusion.

Take the case of Roberta Smith of Foster City, Calif. The 65-year-old has a mortgage where her minimum payments don't cover all the interest that's due. To stop her principal from ballooning, she has drained her retirement accounts. But she fears she soon may not be able to afford even the minimum payment.

Smith applied in late March for the modification program, but JPMorgan Chase (JPM, Fortune 500) told her nearly three weeks later that her package was not complete. She faxed the required documents and was assured by a telephone representative that the bank had everything it needed.

But this week she received a letter saying her request was being canceled because the application was incomplete.

Chase spokesman Tom Kelly said the letter was sent as a mistake and Smith's application is still under review. He acknowledged that the bank, which began processing applications in early April, is still ramping up its modification efforts. Meanwhile, the bank is holding off on foreclosing on applicants.

"It's an enormous task," Kelly said. "We're moving quickly, although not as quickly as an individual might wish."

Angry investors: One complicating factor in the mortgage meltdown is the fact that the loans are bundled into securities and then sold off in pieces to investors. Some servicers have blamed the slow pace of mortgage modifications on the fact that their contracts with investors limit their ability to adjust the loans' terms.

To address this concern, Congress is currently finalizing a bill that would give servicers a "safe harbor" in modifying mortgages.

"The goal of 'safe harbor' is to allow servicers to use these program to their fullest capacity," said Stephen O'Connor, senior vice president of governmental affairs at the Mortgage Bankers Association, which represents servicers.

Some investors, however, are lobbying hard against the bill, saying that the contracts already give servicers the flexibility to make changes. One group of investors has hired the prominent Washington law firm Patton Boggs, while another is waiting to review the final legislation before considering legal action.

"Investors don't have to grant consent," said Bill Frey, head of Greenwich Financial Services who last year filed a lawsuit against Countrywide Financial over its $8.4 billion settlement in which it agreed to lower mortgage payments for many borrowers. The contracts "lay out which loans can be modified and which ones can't."

Other industry experts agree, saying servicers are using investors as a scapegoat.

"If that law passed tomorrow, you won't see any more modifications than you do today," said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter.

Many investors were also steaming that the administration's original program did not require second-lien holders, which are often banks, to take a hit during an adjustment.

Although the administration has since expanded the modification requirement to cover second liens, some investors still aren't satisfied. They want the administration to treat second liens in the modification program the same way it does in the Hope for Homeowners program, which requires these liens to be extinguished, said Micah Green, a partner at Patton Boggs.

Escalating unemployment: The rising unemployment rate is threatening to reverse any gains being made in stabilizing the housing market. When homeowners lose their jobs, they often can't afford to stay in their homes. Modifications often can't help, experts say.

"Unemployment is becoming a bigger factor than almost anything," said John Taylor, head of the National Community Reinvestment Coalition, which assists troubled homeowners.

The administration Thursday expanded its loan modification initiative to make it easier for people to get out from under a crushing mortgage.

If troubled borrowers don't qualify for a modification, their servicers must first evaluate whether the homeowners are eligible for a short-sale or deed-in-lieu agreement before filing for foreclosure. These alternatives allow borrowers to either sell the home for less than the debt owed or give it back to the bank.

The Basics of Foreclosure 'Short–Sales'

By William Bronchick
Attorney, LegalWiz.com

You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a “short pay” or “short sale.”

Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department”. More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.

From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the investor is to convince the lender that it will fare better by accepting less money now.

The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). You can also submit your own appraisal or comparable sales information. In addition you will want to offer as much specific negative information about the property as possible. Also, include some relevant information about the neighborhood and the local economy if things are bad (copies of newspaper articles with “bad news” may help). A contract’s bid for repair estimates should also be submitted, which, of course, should be the highest bid you can obtain!

The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.

Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.

Don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.

The process of the short sale is not that complicated, but the success or failure of the deal depends upon how you present it to the lender. Many novice investors and realtors give up at short sales quickly because their first deal is rejected. Like any business, short sales takes practice to get good. Generally speaking, loss mitigators are pretty good at spotting an amateur investor. If you know what you are doing, the loss mitigators are more likely to make a deal with you.